Estimate the value of Net National Product at Factor Cost (NNP_FC), using the following information : "Disposition Phase of circular flow of Income involves flow of factor Income, which comprises of rent, wages, interest and profits from firms to households." Defend or refute the statement, giving valid reasons in support of your answer.

Question

Accepted Answer

Using Expenditure Method:
GDP_MP = PFCE + GFCE + GDCF + Net Exports
From table: Household Consumption = 1,200, Business Fixed Investment = 800, Government Final Consumption = ?, Net Exports = ?, Depreciation = ?, NIT = ?, NFIA = ?

Using the data to calculate NNP_FC = NDP_FC + NFIA

The statement is CORRECT. The disposition phase of circular flow involves flow of factor income from firms to households. Factor payments include:
- Compensation of employees (wages, salaries)
- Rent and Royalty (income from property)
- Interest (income from lending)
- Profit (reward to entrepreneur)

These payments flow from firms to households in exchange for factor services, completing one round of the circular flow.